UK: Family Takaful

Last Updated: 6 February 2007
Article by Benjamin Macfarlane

Although family takaful is the Islamic equivalent of life insurance, fundamental differences separate the two systems. A better understanding of the principles behind takaful, the laying down of clearer rules for the formulation of policies and a defined role for agents and brokers are essential if market penetration is to increase.

Family takaful does not mean the insurance of a life, but rather it is a financial transaction which undertakes to protect widows, orphans and other dependents of the assured against future unexpected financial risk. At the core of the system is the notion of al-Mudharabah (profit sharing) without the element of riba (interest), which is proscribed under Shariah law.

Various types of family takaful plan are available in the market including:-

  1. Family takaful Plan for Education;
  2. Family takaful Mortgage Plan;
  3. Group family takaful Plan; and
  4. Group Hospitalisation and Medical Benefit.

Aspects of family takaful

A family takaful plan is a long-term saving and investment programme with a fixed maturity period. The plan, apart from enjoying investment profit, provides mutual financial assistance among its participants. The family takaful plan is a programme that pools the financial contributions of its participants to provide assistance across the community in times of need.

A person who takes out a family takaful plan is called a participant. A participant may choose any one of the plans offered by the takaful company. The plans have a defined period of participation; the company and the participant entering into a contract based on the principle of al-Mudharabah, which spells out clearly the rights and obligations of the parties. The participant is required to make regular instalment payments in consideration for his participation in the takaful plan.

Each instalment paid by the participant is divided and credited by the takaful company into two separate accounts: (1) participant’s account (PA) and (2) participant’s special account (PSA). A substantial proportion of this instalment is credited into the participant’s account solely for the purpose of his savings and investment. The balance is credited into the participant’s special account as a donation (tabarru) for the purpose of mutual help.

The takaful instalment credited into these two accounts is pooled as a single fund for the purpose of investment activities undertaken by the takaful company in a manner permitted by Islamic law. Any profits generated from the investment are shared between the participant and the company in a ratio to be mutually agreed between them under the principle of profit-sharing.

Principles underlying family takaful

The basic governing principles may be summarised as follows:

  1. The assured, prior to entering into a life insurance agreement, must have an ‘intention sincerely-held’, that the policy will not lead to gain but will seek to provide protection for his off-spring, spouse and other dependants from unexpected future financial risk.
  2. The life insurance policy should not involve riba (interest). It should be based on the principles of the al-Mudharabah financing principle, whereby the insurer as well as the assured or his beneficiaries share the profits, bonus and dividends accordingly. In the event of losses or liabilities, these should be divided and spread according to the community’s pooling system.
  3. In the case of the assured’s death at any time during the policy term, the beneficiary of the assured may not claim the whole amount, only the paid-premiums, a share of profits made over the paid-premiums, bonus and dividends, plus a donation from the company’s charitable fund according to his financial status.
  4. Where the assured is alive at the end of the policy period, he may only claim from the company the paid-premiums, a share of the profits made over and above the paid-premiums, plus bonus and dividends according to the policy terms.
  5. The nominee in a policy may not be an absolute beneficiary under the terms of the policy. He can be a trustee who is then under a duty to receive the benefits from the insurer and distribute them among the beneficiaries of the assured according to the principles of m irath (inheritance) and wasiyyah (bequest).
  6. The agents in a family takaful are paid out of the share of profit made over the paid premiums by the takaful company.
  7. The company, as regards the investment of the paid premiums, is under an obligation to invest the paid premiums in a lawful business which is free from the elements of riba, ‘gambling’ and other forms of unlawful transaction contrary to Shariah law.
  8. The insurable interest in a family takaful policy should be presented either to the assured himself or to the heirs of the assured according to the principles of mirath and wasiyyah.

Differences between modern life insurance and family takaful

  1. A life insurance policy under the conventional system includes the element of interest where the Islamic model of life insurance policy prohibits its use. Instead takaful operates according to the principle of profit sharing.
  2. Under a conventional life insurance policy, the nominee is an absolute beneficiary. The nominee in a family takaful policy is merely a trustee who is authorised to receive the benefit over the policy on behalf of the assured’s beneficiaries and distribute it among them according to the principles of inheritance and bequest.
  3. Under the conventional system, agents are paid out of the assured’s paid-premiums, whereas under takaful, the agents work for the takaful company and are remunerated by it.
  4. The insurable interest under the conventional system is usually vested in the policyholder himself, if he is still living at the end of the policy period. In the event of his death before the end of the term, the insurable interest will be vested in the husband or wife, parents or children, the benefactor or beneficiary. By contrast, under the takaful model, the insurable interest will be vested in the assured himself or in the event of his death, in his beneficiaries according to the principles of inheritance and bequest.


The object of family takaful is clear: not only to provide future material security for the family of the assured, but also to guarantee support to the other participants of the takaful, involving the entire community and drawing them into mutual obligations and financial cooperation. However, various changes must occur for the takaful system to grow and mature. The capitalization of takaful companies needs to be increased. Marketing needs to be done and more reinsurance (retakaful) encouraged. It must be easier to establish that there is an insurable interest and that the relationship between the parties is ‘legitimate’ and based on the principles of inheritance and bequest. There is a need to agree a minimum age for any contractual party as currently it is set at about the age of majority (rushd), which remains an issue of dispute among Islamic scholars. Finally a network of licensed agents and brokers must be established to promote and develop takaful products and their operation within the Muslim community.

The content of this paper does not constitute legal advice and should not be relied on as such. Specific advice should besought about your specific circumstances.

© B.J. Macfarlane & Co.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.